Ropes v. Upton

• Decision Date: 30 August 1878
• Citation: 125 Mass. 258
• Parties: Joseph W. Ropes v. Franklin Upton
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

125 Mass. 258

Joseph W. Ropes v. Franklin Upton

Supreme Court of Massachusetts

August 30, 1878

Argued November 10, 1877

Essex. Bill in equity, filed October 1, 1877, to restrain the defendant from violating the following agreement, dated August 3, 1876, and signed and sealed by him: "This may certify that I, Franklin Upton, of the town of Danvers, in consideration of the sum of $ 500 to me paid by Joseph W Ropes, hereby agree to sell and relinquish all my interest and good-will in the business now conducted by Ropes &amp Upton, together with all debts now due them; and I hereby agree not to manufacture or sell or become engaged in said business, either for myself or others, hereafter in the town of Danvers, under the forfeiture of $ 1000 to be paid to said Ropes in case of breach of these conditions."

The bill alleged that Ropes, on or about August 1, 1861, entered into partnership with Upton, for the purpose of carrying on the business of manufacturing and selling stoves and tin ware in Danvers, under the firm name of Ropes & Upton, and so continued until August 1, 1876, at which time the partnership was dissolved by mutual consent; that they then agreed that Ropes should assume the payment of all debts of the firm, and Upton should sell to Ropes for $ 500 all his interest in the firm assets, including the good-will of the business, and agree not to engage in the business of manufacturing or selling stoves or tin ware, either for himself or others thereafter, in Danvers, under a forfeiture of $ 1000 in case of breach of such agreement; that Ropes accordingly paid to Upton $ 500, and took from him the above agreement; and that Ropes then continued to carry on such business in Danvers in connection with his son, but that Upton, in violation of his agreement, had also become engaged in such business in Danvers, and still continued to carry on the same, to the great and manifest injury of Ropes. The prayer of the bill was for an injunction, and for general relief.

The defendant demurred for want of equity, and because the plaintiff had a plain, adequate and complete remedy at law.

The case was heard on bill and demurrer, before Endicott, J., who reserved the case for the consideration of the full court.

Demurrer overruled.

W. H. Gove, for the defendant.

J. A. Gillis, for the plaintiff.

Endicott, J. Morton & Soule, JJ., absent.

OPINION

Endicott, J.

When a party has sold to another all his interest and good-will in a particular business, and has agreed not to carry on the same business in the same place, a court of equity will prevent him by injunction from violating the express agreement he has made. Angier v. Webber, 14 Allen 211. Dwight v. Hamilton, 113 Mass. 175. Boutelle v. Smith, 116 Mass. 111. Whether this case falls within the general rule is the question to be decided.

The parties were partners, engaged in the manufacture and sale of stoves and tin ware in Danvers. They dissolved their partnership by mutual consent. The plaintiff agreed to assume all the debts owed by the firm, and the defendant agreed to sell all his interest in the assets and good-will to the plaintiff for the sum of $ 500; and the defendant further agreed that he would not enter into the same business in Danvers, under a forfeiture of $ 1000 in case of breach of the agreement. In pursuance of this agreement, the defendant gave to the plaintiff the writing made a part of the bill.

The case turns upon the construction to be given to this agreement. If the defendant has agreed not to do the act under a penalty of $ 1000 for a breach, equity will restrain him; for a penalty is merely security for the performance of the contract, and is not the price for doing what a man has expressly agreed not to do. Dooley v. Watson, 1 Gray 414. In Hardy v. Martin, 1 Cox Ch. 26, Lord Loughborough said, the court would restrain a person from setting up a trade in opposition to his agreement, although he had paid the penalty. If, on the other hand, the true interpretation of the agreement is that the $ 1000 was intended to be liquidated damages, then it is contended by the defendant that the court will not interfere by injunction, because the plaintiff has his complete remedy at law; and this mainly on the ground of the nature of this contract. In determining the question whether the sum named is a penalty or liquidated damages, courts give but little weight to the mere form of words, but gather the intent from the general scope and purport of the contract; and as it is difficult to estimate damages arising from the breach of an agreement, the subject matter of which is the good-will of a particular business, the current of authorities is to treat the sum named as liquidated damages rather than a penalty.

It is often stated that a court of equity will not interfere to prevent a party from doing an act which he has agreed not to do, when liquidated damages are provided in case he does the act. But this must be taken with some qualifications; for it must appear, from the whole contract, that the stipulated sum was to be paid in lieu of the strict performance of the agreement, and was an alternative which the party making the covenant had the right or option to adopt; as in the cases often cited in support of the general proposition; Woodward v. Gyles, 2 Vern. 119; Rolfe v. Peterson, 2 Bro. P. C. (2d ed.) 436; Ponsonby v. Adams, 2 Bro. P. C. 431. In Woodward v. Gyles, the defendant agreed not to plough any part of the land demised, and, if he did to pay twenty shillings per acre; and it was held that he had the privilege to plough on paying the additional rent, and the court did not restrain him from doing that which the contract provided he might do. So in Rolfe v. Peterson and Ponsonby v. Adams, the substance of the contracts was held to be, that in one contingency the defendant was to pay a certain rent, and in another that he should pay a larger rent, and the court would not interfere. It is said, in all the cases on this subject, that the question in every case is, What is the real meaning of the contract? And if the substance of the agreement is, that the party shall not do a...